New Development Fuels Net Lease Auto Sector

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The Boulder Group cites new store development as the primary factor for cap rate compression

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The primary reason contributing to the substantial decrease in cap rates was an increase in supply of new construction properties with longer term leases

The Boulder Group announced the release of its Net Lease Auto Report today. In the fourth quarter national asking cap rates in the single tenant auto sector decreased to 5.89%, according to the 2020 Net Lease Auto Report. This represented a 48 basis point decrease when compared to the prior year. The auto sector, for the purpose of this report, consists of various auto related tenants in the parts, service and collision sectors.

“The primary reason contributing to the substantial decrease in cap rates was an increase in supply of new construction properties with longer term leases,” says Randy Blankstein, President, The Boulder Group.

According to the report, the new development supply was primarily concentrated in the service and collision sectors as these tenants continue to expand their footprints nationally. In recent years, new store development for the auto parts sector has lagged behind historical standards which has limited the supply of long term leased properties in the auto parts sector. In the fourth quarter of 2020, the median term remaining in the auto parts sector was less than eight years.

“Accordingly, many net lease investors shifted their focus to the service and collision sectors which have been underweighted in investors’ portfolios historically,” adds Jimmy Goodman, Partner, The Boulder Group.

The service and collision sectors held a median term remaining of approximately 12 years in the fourth quarter of 2020. Accordingly, the auto sector to commanded an 11 basis point premium over the overall net lease retail sector in the fourth quarter of 2020. In the fourth quarter of 2019, the auto sector was inversely priced at a 30 basis point discount.

“Investors’ appetite for net lease auto properties can be directly attributed to strong corporate tenancy, typical rent bumps and varied degrees of e-commerce resistance,” John Feeney, Senior Vice President, The Boulder Group adds. “Additionally, the lower price points associated with this sector creates a larger buyer pool.”

In the fourth quarter of 2020, the median asking price for the auto sector was approximately $2 million

Transaction volume in the auto sector should remain similar to 2020 as investors continue to seek properties with strong tenants in the price range this sector provides. “There will continue to increased competition for new construction assets as 1031 and private investors favor these properties,” according to Blankstein. “Auto properties with shorter lease terms located in areas with strong real estate fundamentals also remain in strong demand among buyers seeking higher yields.”

To view the full report:

About The Boulder Group

The Boulder Group is a boutique, Chicago-based investment real estate services firm specializing in transaction and advisory services for single tenant net lease properties. Founded in 1997, the firm has closed over $6 billion of net lease property transactions. The firm provides a full range of brokerage, research, advisory, and financing services nationwide. The level of annual, single-tenant transaction volume consistently ranks the firm in the top 10 companies nationally, according to industry benchmarks determined by CoStar and Real Capital Analytics.

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